The week that was:
On Tuesday the UK began its vaccine program using the Pfizer/BioNTech vaccine. The Moderna and AstraZeneca vaccines may be included later, if and when approved.
The Pfizer/BioNTech vaccine gained overwhelming backing from a panel of government advisors, which clears the way for the United States Food and Drug Administration (FDA) to approve its use, and for the world’s largest economy to start its own vaccine programs at state level.
The Saudi Food and Drug Authority (SFDA) also approved the Pfizer/BioNTech vaccine on Thursday. The UAE’s Ministry of Health and Prevention, meanwhile, approved Sinopharm’s COVID-19 vaccine, saying it is has an efficacy rate of 86 percent, representing a potential boost for Chinese vaccines.
Markets rose on the news of new vaccine approvals and the rollout of programs, although they retracted slightly on Friday morning (CET) amid news of further restrictions and lockdowns in the US and Europe.
Oil rallied, reaching pre-pandemic levels, based on optimism that vaccines will help economies recover by normalizing travel patterns and life in general.
US first-time jobless claims showed that America’s economy is still in the grip of the pandemic, rising by 137,000 to 853,000 for the week ending December 5.
US treasury yields also rose, despite last week’s disappointing unemployment numbers for October. This is both a sign of the decoupling of financial markets from the real economy and of optimism generated by authorities getting closer to rolling out vaccination programs.
The EU approved its $2.2 trillion multiyear budget and pandemic relief package, achieving a compromise with Poland and Hungary over the wording of linking rescue-package disbursement to rule-of-law principles.
The EU also agreed to raise its 2030 emissions reduction target by 15 percent to 55 percent, in a bid to become the first-climate neutral continent. The program again entailed a compromise with some Eastern European countries — including Poland — which rely heavily on coal-fired power stations. It represents a boost for EU Commission President Ursula von der Leyen’s “green deal.”
The European Central Bank (ECB) increased its Pandemic Emergency Purchase Program (PEPP) by €500 million ($606 million) to a total of €1.85 trillion. The PEPP’s duration was extended to the end of March 2022 at the earliest. ECB president Christine Lagarde stressed the need for flexibility according to economic needs in terms of total amounts used/provided and duration. The interest rate remains at 0.5 percent. This gives further impetus to negative-yielding debt, which has reached an all-time high at $18.04 trillion globally.
Oxford Analytica revised its forecasts on how many expats will leave GCC countries in the aftermath of the pandemic. The pandemic’s impact on non-oil domestic economies is anticipated to be smaller than expected. Bahrain and Saudi Arabia will see a return of expats, but it will take time for the numbers to reach pre-pandemic levels. Kuwait and Oman will rely less on foreign workers. The estimates for the UAE remain largely unchanged.
Wall Street saw two blockbuster IPOs: Airbnb’s stock rose by a record 115 percent on listing, reaching a market cap of $86.5 billion. The company’s valuation eclipses stalwarts such as Ford and Kraft Heinz. DoorDash rose by 92 percent, achieving a market cap of $71 billion. According to Bloomberg, IPOs in December have so far raised more than $8.3 billion on Wall Street, surpassing the previous records of 2001 and 2003.
This raised questions about whether the companies had priced their IPOs aggressively enough or had left too much value on the table. Companies going public always face the conundrum of optimizing funds raised versus ensuring that IPOs are seen as a success, achieved by a rising share price on the first day of trading. In this case, we have to take into consideration that these two companies are both one of a kind and define their category. Both of them have also benefited from the pandemic, either by adjusting their business model (Airbnb) or as a result of changing consumption patterns (DoorDash).
The US Federal Trade Commission (FTC) is launching an antitrust investigation into Facebook in an attempt to curb the company’s monopoly. Concerns over Facebook’s monopoly and acquisition war chest are nothing new. However, splitting up the company may not be easy, because Mark Zuckerberg has integrated the Messenger, WhatsApp and Instagram platforms aggressively, both operationally and commercially. The founders of Instagram and WhatsApp left Facebook in 2018 due to frustrations over a lack of autonomy for their platforms once they had been integrated.
Elsewhere, the EU has been looking into competition and taxation issues surrounding US big tech for some time. While on the other side of the Pacific, China started to crack down on the dominant market position of tech giant Alibaba and its daughter Ant and Tencent in November. This was reflected in the delay of Ant Group’s dual IPO on the Shanghai and Hong Kong stock exchanges. These developments will, in the medium term, introduce risk premiums on these companies and affect investor sentiment.
Asian markets have attracted a lot of capital during 2020, reflecting the fast-tracked economic recovery east of the Suez. The MSCI Asia Pacific and Chinese fixed-income assets proved particularly attractive. Given the interest rate differential between China and other major countries, the latter will, in all probability, remain attractive during 2021. China’s opening of capital markets is bound to attract a lot of investor interest going forward, both on the equity and fixed-income sides. According to Bloomberg, foreign holdings of Chinese bonds have reached $ 274 billion (a record) and fixed-income investors have also aggressively moved to other high-yielding Asian markets, including Indonesia.
Where we go from here:
An EU-UK post-Brexit trade deal remains elusive, with both von der Leyen and UK Prime Minister Boris Johnson asking businesses to prepare for the possibility of a No-Deal Brexit. Quite apart from logistical challenges, a No-Deal Brexit would hit UK consumers with around £3 billion ($3.95 billion) worth of tariffs, which could raise some retail prices by as much as 20 percent. The City of London will not be impacted by whether or not the UK and the EU reach a deal, because the service sector, which accounts for close to 80 percent of UK GDP, is not part of a deal. (Finance makes up 7 percent of the UK economy and employs hundreds of thousands of people.)
In the US, a new stimulus package also looks unlikely this side of 2020, because Republican lawmakers balk at Democrats’ demands on state and local government aid and the prospect of a business liability shield.
— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources